How to Fend Off Amazon with AI Strategies of Your Own

How to Fend Off Amazon with AI Strategies of Your Own

Amazon was already collecting hundreds of billions of dollars in annual sales from consumers. But Amazon is coming for distributors’ business, too. Amazon Business, the company’s B2B marketplace, is projected to make $52 billion in sales by 2023. For distributors to fend off this AI-powered giant, they’ll need to understand and adopt AI strategies of their own.

Over the past decade, Amazon has crafted three AI-based selling strategies that are worth billions.

To get a full understanding of the AI-powered strategies below and how you can use them, read our free white paper.

Strategy 1: Product Recommendations

Amazon’s primary sales strategy is AI-powered product recommendations. These appear as suggestive selling features like, “recommended for you,” “products you might like,” “frequently bought together,” and “customers also bought.”

While each of these features is slightly different, the core idea is the same: Amazon uses AI to predict when and what each customer will buy, and leverages that information to create a more compelling shopping experience. This decreases Amazon’s bounce rate by 10%-15%, and increases customer engagement by more than 40%.

As customers move from home to checkout, these recommendations compel them to keep spending. In total, Amazon credits this strategy for fueling 35% of customer purchases. Given that the company does more than $140 billion in sales, calling this a multi-billion dollar strategy is something of an understatement.

Strategy 2: Search Relevancy

When a customer searches for a product on Amazon, they end up clicking to a product page 42% of the time. In contrast, only 16% of Walmart searches end in a click. Competitors like Etsy and BestBuy fare even worse with click rates of just 13% and 12%, respectively.

The fact that Amazon’s search bar is 3X more likely to guide you toward the right sale is no accident. The company employs cutting-edge AI to understand the meaning of customer searches, the relevance of possible results, and the context of searches.

This allows the company to convert $800 million in sales through searches every month than their competitors would. Over a year, that means their search is worth roughly $10 billion.

Strategy 3: AI-Based Advertising

Amazon’s AI-powered features make the site practically irresistible to consumers. 66% of American shoppers now begin their search for products on Amazon. An additional 89% of buyers report being more likely to buy products from Amazon than any other platform. Consequentially, the site is also irresistible to advertisers.

Third-party sellers are willing to pay top dollar to get their products in front of Amazon shoppers. This means that Amazon doesn’t just sell billions of products, it also gets paid to do it! In 2019 alone, Amazon reported $14 billion of “other” revenue, a category primarily comprised of advertising money. 2020 promises to be even better, as the company is currently on pace to grab $20 billion in advertising fees.

Of course, none of this would be possible without Amazon’s AI-powered tools. If Amazon didn’t use suggestive selling and enhanced search to grab customer attention, third-party sellers would have no incentive to advertise with them. Plus, if Amazon couldn’t reliably use AI to pitch the right third-party items to the right customers, they wouldn’t be able to charge premium advertising rates.

As it is, however, Amazon’s ability to put the right products in front of the right customers has made it irreplaceable in the consumer-supply chain. Its advanced AI has made customers want to shop there, and sellers want to sell there.

So what does this mean for distributors?

Amazon uses AI to dominate markets and collect billions. Their AI recommendations alone generate more than $50 billion annually. Their AI-powered suggestive search and resultant advertising revenue are worth roughly an additional annual $10 billion and $20 billion, respectively. As Amazon disrupts the distribution market, it will use these strategies to make further gains and elbow out traditional distributors.

To compete, distributors must learn and adopt these strategies. Distributors have several key advantages when it comes to implementing an AI strategy, such as multichannel sales structures, decades of data and hard-earned customer loyalty. However, they must act fast.

Our white paper offers a review of Amazon’s AI-powered selling strategies and advice on how distributors can adapt and implement these strategies for their businesses. Download here:

I recently spoke about this with Ian Heller and Jonathan Bein an episode of Wholesale Change. Watch now:

Originally published on Distribution Strategy Group

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